Relationships with Managers and Franchisors

12 Months Ended

Dec. 31, 2021

Relationships With Managers [Abstract]

Relationships with Managers and Franchisors

We are party to hotel management agreements for each of our hotels owned. Under our hotel management agreements, the hotel manager receives a base management fee and, if certain financial thresholds are met or exceeded, an incentive management fee. The base management fee is generally payable as a percentage of gross hotel revenues for each fiscal year. The incentive management fee is generally based on hotel operating profits, but the fee only applies to that portion of hotel operating profits above a negotiated return on our invested capital, which we refer to as the owner's priority. We refer to this excess of operating profits over the owner's priority as “available cash flow.”

The following is a summary of management fees for the years ended December 31, 2021, 2020 and 2019 (in thousands):


	Year Ended December 31,
	2021		2020		2019
Base management fees	$	11,542	$	6,908	$	21,712
Incentive management fees	468		—		5,705
Amortization of deferred income related to key money (1)	(213)		(227)		(227)
Amortization of unfavorable contract liabilities	(1,589)		(3,103)		(1,715)
Total management fees, net	$	10,208	$	3,578	$	25,475

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(1)Relates to key money received for Chicago Marriott Downtown Magnificent Mile and Westin Washington D.C. City Center.

Five of our hotels earned incentive management fees for the year ended December 31, 2021. None of our hotels earned incentive management fees for the year ended December 31, 2020. Eight of our hotels earned incentive management fees for the year ended December 31, 2019.

Performance Termination Provisions

Our management agreements provide us with termination rights upon a manager's failure to meet certain financial performance criteria and manager's decision not to cure the failure by making a cure payment.

Key Money

Our managers and franchisors have contributed to us certain amounts in exchange for the right to manage or franchise hotels we have acquired and in connection with the completion of certain brand enhancing capital projects. We refer to these amounts as “key money.” Key money is classified as deferred income in the accompanying consolidated balance sheets and amortized against management fees or franchise fees on the accompanying consolidated statements of operations. During 2021, we received $0.5 million of key money as a result of the change in manager of the Westin Washington D.C. City Center.

Franchise Agreements

We are party to franchise agreements for 18 of our hotels as of December 31, 2021. Pursuant to these franchise agreements, we pay franchise fees based on a percentage of gross room sales, and, under certain agreements, a percentage based on gross food and beverage sales. Further, we pay certain other fees for marketing and reservation services.

The following is a summary of franchise fees for the years ended December 31, 2021, 2020 and 2019 (in thousands):


	Year Ended December 31,
	2021		2020		2019
Franchise fees	$	18,781	$	10,301	$	27,102
Amortization of deferred income related to key money (1)	(116)		(170)		(170)
Total franchise fees, net	$	18,665	$	10,131	$	26,932

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(1)Relates to key money received for The Lexington Hotel and Courtyard New York Manhattan/Fifth Avenue.